TOWARD NET ZERO: ISLAMIC FINANCIAL INNOVATION IN THE CARBON ECONOMY
Tasya Caroline, Nanik Eprianti, M. Andri Ibrahim, Dr. Popon Srisusilawati

Perbankan Syariah, UNISBA

Abstract

The impacts of climate change, the global community has adopted various strategies, including the development of carbon market mechanisms. The global transition toward a low-carbon economy has sparked the development of innovative financial instruments aimed at accelerating climate action. What type of sharia-compliant financial instruments can be developed to support funding for climate change mitigation projects through the carbon market. While green finance has gained momentum in recent years, its alignment with Islamic finance principles remains underexplored, particularly in the context of carbon markets. This study proposes a conceptual framework for sharia-compliant financial instruments that support carbon mitigation efforts, including green sukuk, carbon waqf funds, and performance-based financing models rooted in Islamic contracts such as wakalah, ijarah, and mudharabah. Using a qualitative approach that includes bibliometric analysis, policy document review, and expert interviews, the study identifies critical gaps in the integration of Islamic finance and carbon pricing mechanisms. The findings reveal that Islamic finance offers untapped potential to mobilise ethical, risk-sharing capital for climate-positive projects, particularly in Muslim-majority and emerging economies. However, regulatory standardisation, sharia governance, and investor education remain key challenges. The study contributes to the growing discourse on green Islamic finance and provides practical policy recommendations to enhance the role of Islamic financial institutions in achieving national and global net-zero targets.

Keywords: Islamic Finance, Green Sukuk, Carbon Market, Sharia Compliance, Sustainable Finance.

Topic: Islamic Education